Taxation as fairness, justice as fairness

Tax day is the day Americans must reckon with the cost and value of their government to them.

The basic question most Americans ask themselves when they calculate their tax liability concerns fairness: Do I feel that I’ve paid at least my fair share but not so much that I feel unfairly burdened?

For some months now, President Obama has increasingly been couching his rhetoric in the language of fairness. . . . From his proposed tax hike on high-income households -- the so-called “Buffett Rule” -- to health care reform efforts, the president has defined fairness largely in terms of government income redistribution. He has also set out to paint his political opponents as, at best, uninterested in fairness and, at worst, committed to making society less fair.

The theme of fairness is at the center of the “Buffet Rule” website President Obama’s reelection campaign released last week that lets you compare your tax rate to presumptive Republican nominee Mitt Romney’s tax rate.

It’s a very clever website that is meant to suggest that the tax code will be made fair, or more fair, if the Buffet Rule is made law. However, the website may not actually provide you with the information you need to judge if your tax burden is fair: for example, if you are married with children and enter any income below $65,000 annually, instead of getting an estimate of the tax burden of a typical family like yours, you will get a message that “[s]ome families pay a low tax rate because they have lower incomes. See how a typical middle-class family stacks up against Mitt Romney” (emphasis added). You are then shown that “a middle-class couple” (with no kids) and an income of $42,500 each (emphasis added) pays 20.6 percent and that this is well above Mitt Romney’s rate of 13.9 percent. Viewers of the website are then shown that were Buffet Rule passed, middle-class tax rates would remain unchanged while Romney’s would zoom to 30 percent.

This information is hardly fair: it’s not fair to present a dual-income, no-kids “DINK” couple with a joint income of $85,000 as a “typical family” in a country where the median household income in 2011 was reported by the Census Bureau to have fallen to $49,909. Moreover, given the proximity of the release of the website to tax day and the fact that the Buffet Rule would apply to income, it’s natural to assume that the tax rates shown on the website are income tax rates. But the rates must include also at least payroll taxes, as the federal income tax on a DINK couple with a joint income of $85,000 who claim only the standard deduction is $10,581, or 12.4 percent -- arguably still too high, but well short of 20.6 percent. In fact, income taxes for typical middle-class families have fallen to very low levels in recent years.

The core message of the Obama campaign’s Buffet Rule website is that Americans aren’t getting a fair deal because “millionaires and billionaires” aren’t carrying their weight. The president wants us to focus on the theme of fairness: The Buffet Rule website features President Obama’s March 31st weekly address in which he uses “fair” or “fairness” six times in four minutes to describe his rationale for pressing for passage of the Buffet Rule; this echoes his use of “fair” fourteen times in his economic address in Osawatomie, Kansas, last December, noted by Arthur Brooks in his Washington Examiner piece.

The president’s emphasis on fairness and his connection of fairness to redistributive taxation has its intellectual origin in Harvard philosopher John Rawls’s theory of “justice as fairness,” presented in his 1971 A Theory of Justice. Rawls’s “justice as fairness” is arguably the most influential idea in U.S. public policy in the last half century. Rawls argued that justice as fairness required government redistribution of resources in order to compensate the less well-off for their inferior socioeconomic position. Understanding the intellectual origins of Obama’s thinking requires understanding Rawls’s “justice as fairness.”

The U.S. tax system is undoubtedly unfair and unwise in many ways: there are ridiculous tax loopholes; there are tax breaks for parents who both work not available to families where one parent stays at home; payroll taxes arguably make the overall U.S. tax system regressive; phase-out of credits and deductions like the saver’s credit and child tax-credit boost marginal tax rates for many taxpayers and are so are disincentives to work; one could go on. We also have a fiscal emergency in our country that probably requires increased taxation on more than just the wealthiest as part of a plausible solution.

We genuinely need to have a conversation about how to share fairly the burden of our country’s fiscal mess -- and that conversation itself needs to be fair. Misleading information, and the misleading suggestion that imposing the Buffet Rule would generate enough revenue to get the rest of us off the hook from contributing to a fiscal solution, is not helpful. President Obama’s statement in March to Russian president Dmitry Medvedev that he would have “more flexibility” after the election apparently because he feels he cannot talk frankly with the American people about America’s security was a worrying indication that President Obama isn’t ready for a fair and frank conversation about taxes. The president is right that we need to talk about a fair tax system and a fair way out of our fiscal woes -- is he ready to join that conversation?

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For more reading on this subject, I recommend Peter R. Saunders, “The Rise of the Equalities Industry,” which explores the implications of the quest for “fairness” in British public policy and culture. John Tomasi has also published a new book, Justice as Fairness, which introduces Hayekian themes to Rawls.